Dallas Federal Reserve President Robert Kaplan said Wednesday the central bank should begin reducing its monthly purchases of government bonds and mortgage-backed securities in October.
His view that the central bank should start cutting in two months' time is perhaps the most ambitious of any Fed president to date.
Other senior Fed officials, including Chairman Jerome Powell, have not yet given a forecast as to when they will withdraw the stimulus packages.
“I think that if the economy develops by our September meeting….
The Fed tried to support the US economy in spring 2020 when the Covid-19 pandemic began to shut down businesses across the country. As part of this effort, the central bank has purchased approximately $ 120 billion worth of government bonds and mortgage-backed securities every month to provide cash to banks and other lenders.
But with the economy and employment now healthier, Kaplan told The Exchange that he was comfortable withdrawing the stimulus.
“The reason I'm saying we should start tapering soon is because I think these purchases are very well positioned to drive demand. But we don't have a demand problem in the economy, ”he told CNBC's Steve Liesman. "My thought is that I would sooner take my foot off the accelerator and reduce the revs."
"What I don't want to do is run too long at this speed and then we have to be more aggressive on the road," said Kaplan.
He added that the Fed's asset reduction should be separated from its eventual rate hike. The process of tapering should take about eight months, Kaplan said.
Kaplan's ambitious tone is not entirely surprising.
As a so-called hawk, Kaplan is among the Fed presidents more often in favor of tighter monetary policy and higher interest rates. Kaplan is not a voting member in 2021 of the Federal Reserve's Open Markets Committee, the central bank body responsible for adjusting monetary policy.
His comments to CNBC came just hours after the Labor Department reported that inflation remained at a multi-year high in July. Economists often consider rising prices to be a symptom of a healthy economy, but too high inflation can indicate business is overheating.
The consumer price index [CPI] rose 5.4% yoy in July, the same as in June and the largest increase since August 2008.
Kaplan said the current price hike was due to a mismatch between pent-up consumer demand, the outcome of Covid-19 vaccines and overwhelmed supply chains.
Chairman Powell and other Fed officials have noted the recent acceleration in prices but believe that inflation is "temporary" and that prices will not continue to rise at their current hot pace for much longer.
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